Mexico to the rescue of Pemex, again
The federal government announced yet another liability management mechanism to aid Pemex, leading to a rally in Pemex bonds on the news. This time, however, it required a more complicated than usual mechanism to get funding sources, reflecting Pemex’s status as the world’s most indebted oil company with no profits to pay interest. According to Barclays, Mexico will issue pre capitalization (p-cap) notes in Luxemburg, through a special purpose named EFL I, for investors to buy; EFL I will then buy US treasuries and transfer them, for a fee, to Pemex; Pemex can then conduct repo operations to get cash from participating banks. The government expects to raise between US$8 bn and US$10 bn in the transaction.
Over the last six years, the Mexican government has come up with increasingly convoluted financial mechanisms to aid Pemex. During the López Obrador administration, the government lent money to Pemex through the monetization of pension funds that were granted after the 2014-2015 energy reform, which were meant to aid the company to pay employees benefits over the next few decades. However, AMLO’s administration decided to take those resources to ease Pemex’s financial situation between 2020 and 2021, without fully explaining how the company could be affected by not having those pension notes in the upcoming years.
Also during AMLO’s term, Pemex issued bonds for some of its supppliers, in a transaction that was meant to gauge the market’s reaction to these instruments. Pemex ended up paying a two-digit yield, too expensive compared to previous issuances, and the scheme was scrapped as it did not bring the expected benefits.
Later, Pemex entered into credit default swap (CDS) contracts with some of its larger US suppliers, again in an attempt to pay for long-delayed invoices. Some companies, including SLB, accepted but others, like Weatherford, opted out, seeing the scheme as too risky, arguing that Pemex should simply pay without further delays or discounts —as it usually ends up happening when suppliers factorize their invoices, selling them to banks at a discount.
Now, Sheinbaum’s administration wants to try its own mechanism to aid Pemex. The government is expected to launch the issuance later this month. Analysts expect that, should the move succeed, the administration could launch more of these notes to keep pumping funds to the state-owned company.
“In our view, this is part of the Mexican government’s medium-term funding plan to alleviate Pemex’s dire debt situation. Now market participants will be paying attention to July 28 when the bookrunners will issue the p-caps to see the amount of money they will be able to gather”, said the Barclays analysts.
With a more positive tone, analysts from rating agency Fitch characterized the announcement as ‘credit positive’, arguing it demonstrates the federal government’s willingness and ability to provide substantial support to Pemex. Fitch said it could upgrade the company’s rating. “Legislative actions taken in Mexico that allow PEMEX to share a debt ceiling with the Ministry of Finance and the announced transaction to materially address PEMEX’s short-term maturities, signal stronger government oversight, and improve decision making”, said the agency. This is a sharp change in opinion after just last month it had said that the government’s repeated bailouts of Pemex were “contaminating” Mexico’s sovereign rating by a full notch.
Still, the company’s operational situation will hardly turn around because of this issuance. During AMLO’s administration, Pemex received over US$50 bn in transfers, tax exemptions and other extraordinary support mechanisms, yet the company’s situation actually deteriorated, in many ways. Without a more comprehensive plan to address its structural issues, the company will have to continue to rely on federal handouts – and, increasingly, bankers’ creativity. History has shown that rarely ends well.
Looking for partners
Pemex is moving forward with plans to sign the first 11 mixed contracts, which could net it some US$8 bn in signing bonuses this year. The Energy Ministry (Sener) and Pemex have been in touch with companies in the upstream sector to discuss the opportunities to partner up and develop Pemex’s fields under the new legal framework. First on the list are fields with either ongoing extraction or large reserves, with the intention of securing fresh funding more quickly increase production.
These fields include Homol, Och, Sini-Caparroso, Tamaulipas Constitución, Agua Fría, Cinco Presidentes, Madrefl Bellota, Bakte, Cuervito and mega onshore field Ixachi. The 11 projects would add about 69,400 barrels per day (bpd) of crude production in 2025.
Of the expected US$8 bn in signing bonuses, US$ 5 bn would come from the Ixach field, in which businessman Carlos Slim would be the partner, through Grupo Carso. Ixachi holds over 2 bn bl of oil equivalent (boe) in 3P reserves and was Pemex’s largest natural gas producer in January, with 622 mn cubic feet daily (cfd). The field would add 18,700 bpd of crude and 157.3 mn cfd of gas —the field produced 78,300 bpd and 630 mn cfd in December 2024—in the next year following the new partnership, taking Ixachi’s peak production to more than 100,000 bpd and 1 bn cfd. Companies will drill 48 new wells and spend US$ 4.76 bn over the next 19 years.
Under the new mixed-contract scheme, Pemex can retain at least 40% of the crude production and will not need to provide upfront capital. In the case of the Ixachi project, Pemex would retain 70%, with the remaining 30% for Grupo Carso. Pemex estimated an internal rate of return for its partner of 18%.
British company Harbour Energy is said to be interested in partnering up in projects Och and Madrefil Bellota, working with Egyptian company Cheiron. Early this year, Harbour Energy had expressed interest in operating Zama and was in discussions with Pemex and Talos. Pemex holds 50.4% of Zama, while Talos and Grupo Carso own 17.4%, and Harbour holds 32%.
Chinese oil operator Sinopec and Mexican companies Jaguar, C5M, CHAME, Cesigsa and Diavaz are also mentioned in the presentation among those interested in participating in three more projects. Offshore field Baktel and extra-heavy crude oil offshore cluster Pit, Kayab and Utsil are also mentioned in the presentation, without naming interested parties. These projects present highly difficult technical issues, as they contain heavy crude oil reserves, according to an energy analyst. Pit, Kayab and Utsil would add 200,000 b/d alone by 2032.
The presentation also mentioned that Pemex is seeking partners for ultra-deep water projects Nobils, Maximino, Exploratus, Cratos, Nestok, Kunah and Pilkis. Pemex wants to achieve synergies in these projects with Australian oil operator Woodside —already in a JV with Pemex in ultra-deep water project Trion— and BP. Also, it wants to work with Grupo Carso on Kunah and Pilkis, which are near the gas field Lakach, assigned to Slim’s company by Pemex in 2024. Of note, Pemex is allowed to directly award the contracts if it can justify operational synergies such as increased output, cost reductions or improved margins, based on the new guidelines.
The most interesting fields in the presentation are the ultradeep-water projects. However, a partner has not been identified yet. The fields with an identified partner are not particularly attractive except for Ixach, although Pemex has yet to show that Slim is actually willing to sign a deal, which some industry participants believe is not particularly attractive.
The government has not made any official announcements regarding these potential deals.
In other energy news…
- US energy service companies are calling on President Sheinbaum to step in and resolve Pemex’s growing backlog of unpaid bills, warning that the company’s delays threaten jobs, operations and future investment in Mexico’s energy sector. “Service providers cannot continue operating under such extreme financial uncertainty,” said Tim Tarpley, president of the Energy Workforce and Technology Council (EWTC), a US trade group representing more than 250 global energy companies. “We are not asking for special treatment, we are asking for fair treatment”, he added. The council estimates that Pemex owes US$1.2 bn for work performed in 2024 and 2025. Around US$871 mn corresponds to services completed in 2024 that remain unpaid because of missing Copades documentation, Pemex’s internal billing requirement. An additional US$983 mn stems from work carried out this year, much of it not yet invoiced. The group also flagged another US$2.5 bn in contracted services already scheduled for 2026. EWTC members represent roughly 60% of Pemex’s contract service providers. If the situation remains unresolved, the council warned that service disruptions could begin, directly affecting oil and gas production in Mexico.
- Business chamber Coparmex said repeated payment delays have pushed many domestic contractors to the brink of collapse — despite recent government payments aimed at reducing Pemex’s mounting debt. “The crisis opens the door to corruption, as companies desperate for liquidity report undue pressure and opaque conditions within Pemex to release legitimately owed payments”, Coparmex said. “Payment for contracted services must not be subject to informal or conditional processes.” Pemex has already spent more than two-thirds of its 2025 upstream budget in the first quarter, leaving limited flexibility for the rest of the year. Expectations of private capital through new mixed contracts remain uncertain and are unlikely to bring immediate relief. “Although we recognize that Pemex has paid MXN 147 bn (~US$7.9 bn) so far this year, unless the entire debt is cleared, many companies will remain at risk of halting operations, laying off workers or closing permanently”, Coparmex added.
- Pemex’s drilling activity fell to a new low in the second quarter, weighing on revenues for international oilfield services firm SLB. “As we have commented before, internationally, the Mexico market has seen a significant reduction in activity because of restructuring, reaching a new bottom in terms of activity”, SLB chief executive Olivier Le Peuch said during the company’s 2Q25 earnings call. A sharp drop in land drilling in Mexico was the primary driver behind SLB’s 14% year-on-year revenue decline. The drop was partially offset by strong unconventional drilling in Argentina.
- Halliburton reported signs of improvement in Mexico during the second quarter, though conditions remain unstable, company executives said. “The issues in Mexico, in my view, are not settled, and so I think we see starts and stops in Mexico”, chief executive Jeffrey Miller said. Latin America revenue rose by 9% compared with the same period of 2024, driven by stronger activity across multiple service lines in Mexico and Brazil and more well intervention work in Argentina. But most of the growth came from markets outside Mexico, where operations remained inconsistent, the company said. “I think we are going to see declining rates at a pace that creates pressure to reactivate business there”, Miller said. “Oil and gas is obviously critical to Mexico’s economy, and that will drive recovery.”
- The new National Energy Commission (CNE) granted its first permits for projects related to a 476 gigawatts hour solar plant, gas stations and LP gas. The projects call for a combined investment of over MXN 2 bn (~US$107 mn). The now-extinct Energy Regulatory Commission last issued permits on February 27, 2025.
Download PDF: MI-EnergyChatter-072325